THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ANDERSON COOPER, CNN ANCHOR: Yes, a deadly game it is today. The rockets continue to fall. New threats are flying. Civilians are dying on both sides of the border, and a new day is about to dawn -- the Middle East poised on the brink. (BEGIN VIDEOTAPE)

ANNOUNCER: Pounding Lebanon, taking a shot at Hezbollah's leader, Hezbollah hammering back , casualties on both sides of the border, and U.S. warships gathering to get Americans out.

Raising the stakes.

UNIDENTIFIED MALE: You want an open war? We will go to the open war.

ANNOUNCER: Hezbollah's threat -- they are known as the A-team of terrorism. How much damage can they do, and who's really pulling the strings?

Plus, with casualties, tensions and oil prices all rising, what is the worst-case scenario? Israelis fighting Syria? Americans fighting Iran?

(END VIDEOTAPE)

ANNOUNCER: In Lebanon, Israel and all across the region, this is ANDERSON COOPER 360: "Middle East on the Brink."

Tonight, reporting from northern Israel, here's Anderson Cooper.

COOPER: Good evening.

Over the next two hours, we are going to bring you more coverage than anyone else from all points of map in this current crisis -- the Middle East poised on the brink.

I'm in the town of Nahariya this morning. A new day, it is. Saturday morning is about to dawn, and no one knows what this day will hold. Already, just in the last 24 hours, more than 100 Katyusha rockets have landed on this town and the rest of northern Israel, all fired by Hezbollah, coming from Lebanon.

In this town, on this street, just down that block, a Katyusha rocket fell on Friday morning, another one over in that direction, two rockets in this town today. There have been deaths here, and there have been many deaths in Lebanon as well -- some 60 civilians said to be killed over the last three or four days or so -- and, of course, no letup in sight.

Nahariya is the northern most town here in -- in this part of Israel, just a few, six or seven or so, miles away from the Lebanese border. Today was a day of rhetoric and a day of violence -- some sort of a drone, an unmanned drone, hitting a ship, an Israeli ship, off the coast of Lebanon.

Also today, Israel keeps hammering targets in Lebanon, even taking a shot at the home of Hezbollah's leader, this after the Hezbollah leader essentially today said, bring it on.

(BEGIN VIDEOTAPE)

COOPER (voice-over): The message from Hezbollah's leader, Hassan Nasrallah, couldn't have been more chilling.

"You want an open war?" he said. "We will go to an open war. And we're ready for it, war, war on every level" -- that in response to an attack on the house by Israeli missiles. Israel bombed Lebanese airports and suburbs of Beirut, and Hezbollah fired back, shooting dozens of missiles into at least six northern Israeli towns.

As the threats and missiles flew, and the civilian casualties rose, President Bush, on his way to the G8 Summit, worked the phones, talking to world leaders -- Lebanon's prime minister, Fuad Siniora, asking him to help win a cease-fire. Siniora also appealed to the world.

FUAD SINIORA, PRIME MINISTER OF LEBANON: We have a problem at our hands now in Lebanon. We have to really concentrate our efforts on trying to solve this problem, starting by finding an immediate way how to effect a cease-fire.

COOPER: At the United Nations, Israel's ambassador saw a very different problem.

DAN GILLERMAN, ISRAELI AMBASSADOR TO UNITED NATIONS: Hezbollah, together with Hamas, Syria, and Iran, comprise the world's new and ominous axis of terror, an infamous club.

COOPER: So far, there's no absolute proof Syria and Iran were behind the attack that triggered the current crisis. But when asked about the role both countries may have played, Lebanon's prime minister today it would be, in his words, strange for Hezbollah to have done this alone.

Iran's president, Mahmoud Ahmadinejad, offered his support to Syria's president in a phone call today, saying: "If the occupying regime of Jerusalem attacks Syria, it will be equivalent to an attack on the whole Islamic world and the regime -- Israel -- will face a crushing response."

Even before arriving in Saint Petersburg today, preventing this crisis from spiralling out of control was clearly foremost on President Bush's mind. GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: my biggest concern is whether or not actions taken will weaken the Siniora government. The democracy in Lebanon is an important part of laying a -- you know, a foundation for peace in that region.

COOPER: A region on the precipice, whose troubles today drove oil prices higher still, more than $77 a barrel, making this Middle East crisis as close as the gas pump for most Americans.

(END VIDEOTAPE)

COOPER: Well, the price of this crisis for Americans right now, and right now, might be just in dollars and cents at the gas pump -- for now, that is.

For the Lebanese and for the Israelis, the cost is being paid in lives -- twelve Israelis dead, at least, in the last three days, 63 Lebanese, at least, dead as well.

You go around, you look around in this town, in Nahariya, where I am right now, it is essentially a ghost town. It's very early in the morning, but these streets are completely empty. And this is what it looked like last night, on Friday evening. Normally, on a Friday evening, even though it's the sabbath, this town, which is not a particularly strong religious community, would have been bustling with tourists and -- and residents, people eating in outdoor cafes.

Most of those people have gone. And the people who are remaining here are hunkered down in underground bunkers right now. There are bunkers all around, in the buildings, in the basements here, and that is where you find the civilians, the residents who have remained here in Nahariya.

We will have a lot of -- of what is like for them right now.

But, first, let's show you what life is like in Lebanon.

CNN's Nic Robertson is in Beirut.

(BEGIN VIDEOTAPE)

NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice- over): Beirut seems to be unraveling in real time. Throughout Lebanon, throughout the day, Israeli bombs and missiles caused chaos, much of the fire focused on infrastructure in the south of the country and Beirut's densely-packed southern suburbs, heartland of Shiite Hezbollah guerrillas, who stole across the border into Israel Wednesday, captured two Israeli soldiers, and continue to fire rockets into Israel.

FUAD SINIORA, PRIME MINISTER OF LEBANON: Lebanon should not really be dealt this way. Actually, the retaliation of Israel against the abduction of the two -- of the two soldiers in -- in the -- across the Blue Line is in no way proportionate.

SINIORA: Why we are being asked to stop Hezbollah, but, at the same time, nobody is putting the necessary pressure on Israel to resolve the problem? I mean, the problem -- the problem is causing the presence of Hezbollah.

ROBERTSON (on camera): Beirut and Lebanon are slowly being cut off from the outside world, bridges, like this one, bombed, reduced to bits of concrete and twisted steel. And outside of the city, the government says the ports are being blockaded. And, over there, the smoke is still rising from the airport that's been the site of repeated attacks over the last few days.

(voice-over): Right after our interview, we went out to get reaction to the bombing. We didn't know it was the beginning of an incredible two hours in the city.

ROBERTSON: Young Lebanese, sightseeing the damage on motorbikes, told me the same, swearing to avenge the destruction.

"God willing, we will join together," they insist, "and fight Israelis for Sheikh Hassan Nasrallah," the Hezbollah leader. But, as we left the area, artillery shells fell close by. We drove around the corner.

(on camera): What was that we heard?

(EXPLOSIONS)

ROBERTSON (voice-over): Smoke filled the street where Sheikh Hassan Nasrallah has his headquarters.

(on camera): We were just out on the street then when there were several loud explosions. There's absolutely no indication they're coming, just boom, boom, and then smoke coming up from the buildings, everyone jumping in their cars, running away, trying to get cover. That's what we're doing, driving away as quick as we can.

(voice-over): Within minutes of the bombing, the Hezbollah leader was speaking on TV, showing he wasn't killed in the attack.

"You want an open war? We will go to an open war. And we are ready for it, war, war on every level," he said, then, taking most people by surprise, announcing an attack. "The surprises will begin today in the middle of the sea," he said, "across from Beirut. Look at it burning, sinking with Israeli soldiers."

Around Beirut, south and north, celebratory gunfire erupted. And, in fact, just 20 minutes later, Israeli officials confirmed, one of their ships off the coast of Beirut had been damaged in an attack. Incredibly, it was only hours before that, Lebanon's prime minister had been talking of peace.

SINIORA: I believe -- I believe that we should try to arrive at an immediate cease-fire.

ROBERTSON: But the problem is, the prime minister appears to have no influence with Hezbollah, which is now driving Lebanon towards war.

(END VIDEOTAPE)

COOPER: Yes, Nic, did -- did the prime minister talk about that? I mean, do -- do they say that they -- do they believe, or will they publicly say, that they have any influence over Hezbollah at all?

ROBERTSON: You know, he just dodges around that question, Anderson, and he doesn't seem to -- he doesn't seem to want to address it head on, not publicly.

What was really interesting, as an aside to that meeting, his aides were really hinting at me, he just can't say this stuff. He just can't say this.

What he did say was, he doesn't believe in kidnapping Israeli soldiers is the right way to go; the government, as a whole, disavows it; that he thinks that Hezbollah has essentially made a tactical, strategic error; and that he can't rule out the possibility of Iranian and Syrian involvement behind Hezbollah's actions.

But actually ask him, "Can you deal with Hezbollah?" he will not answer that directly, because he knows, if he does, he is heading for a whole lot of problems, dividing the country. that and would be very problematic in this current environment -- Anderson.

COOPER: And -- and, Nic, explain, just for those who don't understand, I mean, the Lebanese government that is in power right now, they essentially do not have a control over their southern border. It's Hezbollah who has control over it and -- and can take these actions unilaterally.

They have the arms. And the Lebanese government, from -- from all I can tell and I can read, they don't have the -- the -- the military might to stop Hezbollah.

ROBERTSON: The military might, the political inclination, the strength of the government, they lack those.

Just a few months ago, analysts in this area were pointing out to me what Hezbollah was saying.

And they're saying: Nic, listen to what the leader of Hezbollah is saying, Sheikh Hassan Nasrallah. Several months ago, he said, anyone who tries to disarm Hezbollah is going to face attack. And he described the type of attack. (AUDIO GAP) has been out there from Hezbollah, directed at the Lebanese government, directed at anyone else who thinks they might try and disarm them. So, when Hezbollah wants to set up the border, the southern border, against Israel, there is no one there to stop them -- Anderson.

COOPER: No one to stop them.

Nic Robertson, appreciate that report.

You saw Nic running for cover, people in Beirut running for cover when the Israeli warships come in. The same situation happens here all throughout northern Israel in these towns, like Nahariya, where I am now.

The problem here is Katyusha rockets fired by Hezbollah.

CNN's Paula Hancocks showed what life is like for some people here in Nahariya.

(BEGIN VIDEOTAPE)

PAULA HANCOCKS, CNN CORRESPONDENT (voice-over): This is what a Katyusha rocket sounds like. It's a sound the residents of Safed, 10 miles from the Lebanese border, are getting used to.

One rocket hits this apartment block. Police tell residents to stay indoors. But many can't resist coming to look. One neighbor stands next to what is left of his car and tells me, he's scared, he's afraid of staying in this town, and he doesn't know what to do.

This rocket, less deadly than some, but two people were injured.

UNIDENTIFIED MALE: And the windows also shattered in people's houses, you know?

HANCOCKS: Gabriel Mardel (ph) lives just a block away. He moved to Israel from New York 28 years ago.

(on camera): How do you feel when you actually hear these Katyusha rockets?

UNIDENTIFIED MALE: Terribly frightened.

HANCOCKS (voice-over): On Thursday, he sent some of his 11 children to Tel Aviv, in the hope that Hezbollah doesn't have rockets that reach that far.

This is the where the rest of his children sit all day, away from all the windows.

UNIDENTIFIED FEMALE: Sometimes, I get in panic. I can't do anything. I -- my hands are shaking. And it's -- my heart. It's very -- very scary.

HANCOCKS: It's the first time in their lives that they have felt in danger, not so for their father.

UNIDENTIFIED MALE: I tell you the truth that I feel all over the country, in -- and what I see, the tension and the fright is more now than it used to be.

HANCOCKS: His wife, Sara (ph), has little sympathy for international calls for Israel to show restraint.

UNIDENTIFIED FEMALE: Condoleezza Rice told us that we should be -- hold back. And we say, well, if Pennsylvania, New Jersey, or New York had to sit in a bomb shelter, would you like anybody to tell you to hold back?

HANCOCKS: As the parents prepare for the Jewish sabbath, the children prepare to spend another night in a neighbor's basement. It's not reinforced, but it does face south, away from Lebanon. For them, that's enough.

Paula Hancocks, CNN, Safed, northern Israel.

(END VIDEOTAPE)

COOPER: Well, today, in New York, the United Nations Security Council debating on a Beirut demand, a Lebanese demand to get Israel to stop airstrikes against Beirut -- no resolution on that debate.

And from the U.N. ambassador -- the U.S. U.N. ambassador, John Bolton, not even a call for Israel to show restraint -- the topic, of course, was -- was high on the list of President Bush, even as he headed to the G8 Summit with world leaders.

CNN's Suzanne Malveaux is there.

(BEGIN VIDEOTAPE)

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT (voice-over): President Bush arrived in Saint Petersburg two days ahead of the G8 Summit to have what aides call private and frank discussions with someone he calls an old friend, Russian President Vladimir Putin.

(TANKS FIRING)

MALVEAUX: But it's the crisis in the Middle East that has now taken center stage.

Before his arrival aboard Air Force One, Mr. Bush called key allies in the region, the leaders of Egypt and Jordan, to press them to use their influence with Hezbollah to get the Israeli soldiers released. He also called Lebanon's prime minister, Fuad Siniora, to reiterate his belief that Israel has the right to protect itself against Hezbollah, but should try to spare the innocent and respect Siniora's authority.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Whatever Israel does, though, should -- should not weaken the Siniora government in Lebanon. MALVEAUX: White House officials denied that Mr. Bush was calling for Israel to stop its attacks, saying that was a matter for the Israeli military to decide. But Mr. Bush has not spoken to Israel's prime minister, Ehud Olmert. That task has been left to his secretary of state, Condoleezza Rice.

CONDOLEEZZA RICE, SECRETARY OF STATE: We just continue to ask that the Israelis exercise restraint, be concerned about civilian casualties, be concerned, of course, about civilian infrastructure. And that's been the nature of our conversations.

MALVEAUX: Rice called several regional leaders and the U.N.'s Kofi Annan, while other U.S. officials in the region are making personal contacts. Former Middle East Envoy Dennis Ross says the U.S. is being reduced to sitting on the sidelines, while others say the administration needs to better engage on all sides.

DANIEL KURTZER, FORMER U.S. AMBASSADOR TO ISRAEL: Our peace process policy is in shambles. The road map of peace that President Bush articulated really doesn't exist anymore. We don't talk to Hamas. We don't talk to Hezbollah. So, to empower a few people to run around and try to make some progress, without deciding what basis on which they're going to operate, I think, would be foolhardy.

MALVEAUX (on camera): It's far from clear whether or not the G8 leaders at the summit will come up with a unified response to the Middle East crisis. Already, there is a split, with Russia and France saying they believe Israel has overreacted, while the United States and Germany disagree.

Suzanne Malveaux, CNN, Saint Petersburg, Russia.

(END VIDEOTAPE)

COOPER: Well, of course, in Lebanon, it is not just Lebanese who are under fire. There are many Americans there as well, some 25,000 American citizens, we are told, according to the State Department, in Lebanon right now. Coming up, you will hear from one of them, what life is like for them, and what the U.S. government is trying to do to get them out.

Also ahead tonight: the what-if factor. What if Syria steps in? What if Iran directly steps in and the U.S.? Tonight, the worst-case scenario.

And, later, back home, a very different kind of threat: wildfires, already massive. And the forecast may only add fuel to the flames. We will take you to the front lines of those battling the blaze -- when 360 continues.

(COMMERCIAL BREAK)

COOPER: That the scene earlier on Friday here in Nahariya, what it looks like, a Katyusha rocket landing in this city.

We have seen hundreds of Katyusha rockets landing all across northern Israel in towns large and small over the last several days, more than 400 rockets, according to the Israeli Defense Forces.

And, of course, for every Katyusha rocket that lands, Israelis respond with -- with their artillery as well. We will show you. We will take you to an Israeli artillery battery firing that I was at earlier tonight a little bit later on in this special edition of 360.

But, first, we want to show you what life is like for a number of Americans trapped right now in Beirut and throughout Lebanon. The State Department estimates there's as many as 25,000 Americans who cannot get out at this point. We will show you right now what the U.S. military is trying to do for them.

CNN's Jamie McIntyre has that story.

(BEGIN VIDEOTAPE)

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT (voice-over): The open warfare between Israel and Hezbollah has essentially trapped an estimated 25,000 Americans in Lebanon. The State Department says, all U.S. citizens, except essential embassy personnel, should consider leaving what has become a war zone.

The American Embassy in Beirut has put an authorized departure policy in effect. But with no safe way out, for now, most Americans are on their own.

SEAN MCCORMACK, STATE DEPARTMENT SPOKESMAN: Conditions permitting, we have urged American citizens to leave -- consider leaving Lebanon. But, again, they have to take into account their own personal security. That's going to be a decision that they have -- that they have to make themselves.

MCINTYRE: With Beirut's main airport cratered by Israeli bombs, the usual manner of evacuating Americans, chartering commercial aircraft, is not an option, although, under a brief cease-fire, Israel allowed Lebanon to move five airliners to safety and also permitted the former Lebanese prime minister's private plane to take off, before the runway was bombed again.

Pentagon sources say the U.S. military is considering a number of options if an emergency evacuation is ordered. The nearest U.S. ships with helicopters are part of a seven-ship task force headed by the Iwo Jima, which is in the Red Sea. It would take several days, though, for it to move back through the Suez Canal to the Mediterranean, because it would first have to collect many of its 2,200 Marines, who are ashore in Jordan on an exercise.

Another option would be to move helicopters to the nearby island of Cyprus, roughly 150 miles from Beirut, close enough for un-refueled helicopter runs back and forth.

(on camera): It's also possible the U.S. may work out a brief cease-fire to use the Beirut international airport, given its close ties with the Israeli government.

Whatever the U.S. does, it won't be in secret. The last thing the U.S. military wants to do is draw ground fire by sending in evacuation helicopters that could be confused for Israeli helicopter gunships.

Jamie McIntyre, CNN, the Pentagon.

(END VIDEOTAPE)

COOPER: Well, we will have more on the plight of the Lebanese and the Israelis in a moment.

But, first, let's check in with John Roberts with some of the other day's headlines. John is in Washington tonight -- John.

JOHN ROBERTS, CNN SENIOR NATIONAL CORRESPONDENT: Thank you, Anderson.

The violence where you are has triggered soaring oil prices in the world market. Today, the cost of a barrel of oil closed at $77.03. That's a new high. And, on average, gasoline prices nationwide are hovering near $3 a gallon, expected to go up.

In California, those two wildfires in San Bernardino County have now merged. In all, so far, they have blackened some 60,000 acres. Dozens of homes and buildings have been destroyed. More than 3,000 firefighters are trying to contain the flames.

And, in Virginia, carbon monoxide poisoning has killed an elderly man and sent more than 90 others to the hospital. It happened at a dormitory at Roanoke College in Salem. The cause of the leak is unknown.

That's it from stateside for now -- now back to Nahariya and Anderson -- Anderson.

COOPER: John, thanks. We are going to check in with you a little bit later on to check out the wildfires happening out West.

A new day is dawning here. It is Saturday morning. And we're going to have a lot about what this new day may hold. Just how dangerous could it get here? We will examine that ahead.

Also tonight, blood brothers, Hamas and Hezbollah, two Islamic militant groups now forging a new and deadly partnership -- when this special edition of 360, live from Nahariya, continues.

(COMMERCIAL BREAK)

COOPER: From a kidnapping, to a skirmish, to the threat of all- out war, how bad could things get here? The Middle East poised on the brink -- when this special edition of 360 continues in a moment.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

COOPER: Some Israeli soldiers who are bunked down for the night here.

This is a -- a bomb shelter underneath one of the hotels in -- in Nahariya. This bomb shelter has room for about 300 people. And that's about as many people who are inside the hotel right now. Most of them are foreign journalists and a few soldiers. They have put a lot mattresses down on the floor.

All throughout the day, they have been telling people, anyone who does remain in this town should spend the night in -- in a bomb shelter like this.

Of course, it is not all soldiers (AUDIO GAP) journalists who are staying here in the bomb shelter tonight. There are also some families. And, of course, that means kids. So, they built a -- a playground in this bomb shelter.

(LAUGHTER)

COOPER: Hello.

(END VIDEOTAPE)

COOPER: Well, that little boy, of course, is just one of the children caught in this conflict on both sides of the border, in Lebanon and certainly here in Israel as well.

We are reporting from the town of Nahariya, a town which is really a -- a ghost town. It is very early on Saturday morning. We're hearing Israeli warplanes flying overhead. It has become a very familiar sight. You also may be hearing some birds chirping, greeting the new dawn.

What this day will hold, no one can tell. We do have a sense, though, of how bad things can get here. We have seen how bad things have gotten in the past. And with all the players involved here, all the hands in this -- in this effort, this can turn very nasty very quick. And the escalation shows no sign of letting up.

CNN's Tom Foreman takes a look at the worst-case scenario.

(BEGIN VIDEOTAPE)

TOM FOREMAN, CNN CORRESPONDENT: Governments all over the world are watching this relatively small region, north of Africa here, trying to figure out if the trouble can expand to a bigger area.

Let's consider what we have. The southern part here is Israel. North of it is Lebanon. And the southern part of Lebanon -- that area right there -- is controlled by Hezbollah, an internationally recognized terrorist group that has been there for many years, attacking Israel across the border.

Hezbollah captured two Israeli soldiers and took them hostage. And now, everything's broken out over that issue. Hezbollah is firing rockets to Israel. Israel is attacking and trying to put a ring around fire Hezbollah. They're attacking their command center, their communications, their supplies through Beirut.

They put a blockade out here in the Mediterranean Sea, and Hezbollah has fired a rocket out here and hit one of their ships or some sort of unmanned drone.

The bottom line is, Israel is saying, as long as these soldiers are missing, they will punish Hezbollah.

BRIG. GEN. JAMES MARKS (RET.), CNN MILITARY ANALYST: They have already demonstrated that they're having a pretty good level of success of slamming into Hezbollah and bringing some great wrath down on Hezbollah that is long overdue.

FOREMAN: Hezbollah is showing to sign of bending on this at all. They blame Israel for attacking them for many years, they say, going after their people. So they are sending out a call saying they will continue fighting. The soldiers will not be returned.

HASSAN NASRALLAH, HEZBOLLAH LEADER (through translator): You want an open war? We will go to the open war. And we are ready for it.

FOREMAN: So back to the basic question, how could this expand beyond that immediate area?

First of all, look at Syria, a long-time friend and supporter of Hezbollah. One of the concerns is that Israel might expand into Syria in their pursuit of Hezbollah and the suppliers of Hezbollah, and that could excite the Arab world into a broader battle.

Beyond Syria, a bigger issue. Iran sitting over here. The United States and other nations, as you recall only a few weeks ago, were greatly concerned about Iran potentially developing nuclear weapons.

If Iran used a regional conflict as any kind of excuse to speed up that process, or if the United States and other countries simply became worried that they might be doing that, this could give greater reason for forces to gather around Iran and put pressure on Iran.

And bear in mind, in the middle of all of this is where Iraq is located, full of U.S. troops.

All of the experts I talked to seemed to have no agreement as to how all of this might come together in a bigger, regional problem, but they say when you put the players in a row, and you have a spark over here, the potential for something much bigger developing is certainly there. They hope not. But it is there.

(END VIDEOTAPE)

COOPER: It certainly is. And as forces are battling in Lebanon right now, rallies are happening in Gaza. We're going to take a look, coming up with a live report from Gaza, to show you what's going on there and whether there is a growing link between these hard line, radical Islamic groups, between Hamas and between Hezbollah and ideological and organizational unity, the likes of which we have not seen before. We'll take a look at that.

We'll also show you my reporters' notebook, what the drive up here is like, some of what life is like here right now in Northern Israel. When "The Middle East on the Brink" continues in a moment.

(COMMERCIAL BREAK)

COOPER: That's the scene, Palestinians demonstrating in Gaza today, led by Hamas, in support of what Hezbollah is doing here along the border with Israel.

We are joining you now from Nahariya. We're starting to hear some helicopters in the sky, no doubt Israeli helicopters. We also heard sort of the dull thud of incoming rockets a distance away as we decided to put on the vest and that's why it's on. But our location is relatively secure, and we have a fall back position we can run to very quickly. So we feel pretty good about where we are.

But we want to go back to what's happening in the Gaza Strip and Gaza City. CNN's Ben Wedeman is there and talks about the growing alliance, what may be a growing alliance between what were, for the last several years, rivals, radical Islamic groups, Hamas and Hezbollah, now perhaps joined together.

Ben Wedeman explains.

(BEGIN VIDEOTAPE)

BEN WEDEMAN, CNN CORRESPONDENT (voice-over): They came pouring out of Egypt, hundreds of Palestinians stuck since late June at the only border crossing between Egypt and Gaza. Now, liberated from limbo, by Hamas gunmen, who blew a hole in the fence as Egyptian and Palestinian border guards looked on.

Israel forced a closure of the crossing when one of its soldiers, Gilad Shalit, was abducted by Hamas militants three weeks ago. And as they entered Gaza, who did the Palestinians thank?

UNIDENTIFIED FEMALE: Hezbollah.

WEDEMAN: "Hassan Nasrallah," says this woman, referring to the leader of Hezbollah.

In the chaos, people helped themselves to bags of rice from a nearby warehouse. As dusk descends, Israeli helicopters hover overhead, firing warning shots to disperse the crowd.

Earlier in the day, Hamas was on the march. The radical Islamic group, which has held one Israeli soldier for almost three weeks, organized rallies all over Gaza in support of Hezbollah, which is holding two Israeli soldiers. Hezbollah's yellow flag flies next to Hamas' green banner.

"God willing, everything will come down on the heads of the Jews and we'll defeat them," says Hamas supporter Abu Majahid. Little chance of that happening, but the fighting in Lebanon has ignited passion among the militants and their supporters for a regional war against Israel. Gaza's misery, it appears, loves company.

Addressing the crowd, Hamas spokesman Moshiya Massadi (ph) called on Arab and Islamic leaders to get off the sidelines and join the fight against Israel or face the anger of their people.

And while Gaza's streets are noisy, its front lines have gone relatively quiet.

(on camera) Israel seems to have suspended most of its military operations in Gaza, if only for now. Shortly after dawn residents in central Gaza returned to areas evacuated by withdrawing Israeli forces.

But Hamas didn't suspend its military operations against Israel, firing Qassam rockets near the Israeli town of Stidot (ph). No injuries or damage were reported.

Not much compared to Hezbollah's arsenal. But enough for Hamas to make sure its voice isn't drowned out by the guns in Lebanon.

Ben Wedeman, CNN, Gaza.

(END VIDEOTAPE)

COOPER: We're joined now by Reza Aslan. He's the author of the book "No God but God." He joins us now from Los Angeles. He's with the USC Center on Public Diplomacy.

Reza, it's always good to have you on the program. What about this linkage between Hamas and Hezbollah? Traditionally rivals. How big of a concern is it?

REZA ASLAN, AUTHOR, "NO GOD BUT GOD": Well, I think it is a concern. I mean, I think that this is a collusion that has come about because of the circumstances that both groups are in.

But Hezbollah and Hamas have a lot in common. They're both nationalist organizations. They both use the same kinds of tactics, terrorist tactics against Israel. They're both fragmented groups. There's a distinct split between the political and military wing of both Hezbollah and Hamas, and they both rely enormously on external forces -- Syria, Iran -- for their funding.

COOPER: Senator George Mitchell was on "LARRY KING" earlier and talked about this in terms of the war going on within Islam, sort of the battle between Islamic extremists and more modern elements.

If there is such a battle really going on, does it seem now, with this linkage, with the sort of growing dominance, it seems, of Iran, the words coming today from Hezbollah, does it seem like the hard liners, the Islamic extremists are winning?

ASLAN: Well, the hard liners, you know, the extremists, those voices are always going to be the loudest voice, particularly in that region. But the truth of the matter is that the kind of cycle of violence that we're seeing now, the escalation of violence, really, with the bombing of Beirut and the incursion into Gaza. These kinds of actions just further drown out the voices of moderation as, you know, as they are in that region.

And so, that's really the greatest tragedy of this, is that those extremists, those radicals, particularly those outside of Lebanon and the Palestinian territories, who are very eager to use this kind of resurgence of violence and radicalism to further their own goals, this just really feeds right into their hands.

COOPER: What does Hezbollah gain? What does Hamas gain? Is it just credibility if prisoners are finally exchanged, that they get the credit?

ASLAN: Well, with Hezbollah, certainly, this has a lot to do with the internal politics taking place in Lebanon and the greater -- the greater pressure being brought to Beirut to disarm Hezbollah as the U.N. has called for.

And I think, also, Hezbollah wants to continue to make a name for itself as a liberator of the Arab peoples against what they see as Israeli aggression, so their incursion into Northern Israel had far more to do with the Israeli incursion into Gaza than with anything else.

With Hamas, of course, they're really fragmented along their internal leadership, represented by Prime Minister Ismail Haniyah and the external and far more radical leadership in Syria represented by Khaled Mashal. And I think Mashal especially is really trying to -- to exert a level of influence and authority into Palestinian politics that the distance that he has from Palestine sometimes keeps him from doing so.

COOPER: Hmm, interesting. Reza, appreciate you joining us again. Reza Aslan, always good to have you on the show. Thanks for your perspective.

ASLAN: My pleasure.

COOPER: Coming up, I spent...

ASLAN: Be safe.

COOPER: I will, I will, certainly. I spent a good time here several hours ago, a good deal of time with an Israeli artillery battery. We're going to show you what it is like for them on the front lines of the fighting. Take a look.

(BEGIN VIDEO CLIP)

COOPER: OK. They're firing. It's the first shell that they have fired. We're not sure how many they plan to fire. Closer?

OK. (END VIDEO CLIP)

COOPER: A very long night on this side of the Israeli border when 360 continues.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

COOPER (voice-over): After flying to Tel Aviv today, we immediately began driving north toward the Lebanese border.

Around Tel Aviv, life seems relatively normal. The roads are mostly empty, but it's the Sabbath so that's not unusual. After checking with various sources, our team decides to head to the town of Nahariya, one of the many border towns hit by Hezbollah's Katyusha rockets.

(on camera) Drive north outside of Tel Aviv, you pass the town of Fidera (ph). There's a major power plant that supplies power to this region and Israel. Hezbollah has said they have rockets which could hit the power plant, and so far they have chosen not to use them. They have fired rockets at Haifa just yesterday. That's about 25 miles north of Fidera (ph).

(voice-over) The radio is filled with the latest news of the fighting. And when we get to Nahariya, it's almost dark. The streets are empty. This tourist town is now shut down by the threat of rockets falling from the sky.

(END VIDEOTAPE)

COOPER: And already, here, this morning, a new day in Nahariya. We've heard some explosions, probably about 10 minutes or so ago in the distance, nothing too close. We're trying to find out exactly what they were. We believe to be, of course, Katyusha rockets.

We have confirmation from the Israeli Defense Forces that some Katyusha rockets have been fired this morning at the Golan Heights. But that's not the sound we heard earlier. We're trying to get confirmation of exactly what it was that we heard.

We're going to have a lot more from here in Nahariya in this hour and, of course, the next hour. But first, let's check in with John Roberts, who's got the business headlines -- John.

JOHN ROBERTS, CNN ANCHOR: Thanks, Anderson. Keep your head down.

The Mideast violence is taking a toll on Wall Street. Stocks continue to tumble, the Dow dropping nearly 400 points over the last three days. Blue chips closing today at 10,739.

At the same time, oil prices surged to a new record at just over $77 a barrel. Not all the news was bad for investors, though. Today Petco Animal Supplies was bought out by a private company. It's a $1.68 billion deal. This sale helped Petco's shares soar 43 percent.

And music to your ears and your feet. Apple is unveiling a new iPod for Nike sneakers. Sensors attached to the footwear will give people workout information on time, distance, calories burned and, of course, their favorite song play list. Another wonder of the modern world -- Anderson.

COOPER: It's too much information, John. Too much information already. John, thanks. We're going to check in with you -- yes, I know. We're going to check in with you for the latest on the situation with the wildfires out west.

But we're going to have a lot more from here from Israel and particularly, I spent the night, two hours tonight with a unit of Israeli artillery, firing on Katyusha rocket positions in Lebanon. Take a look.

(BEGIN VIDEO CLIP)

COOPER: This one.

OK. That's the first shell that they have fired.

(END VIDEO CLIP)

COOPER: It was a long night, indeed, a tit for tat game that goes on day and night. We'll show you what it's like for the Israeli soldiers on this side of the border when 360 continues.

(COMMERCIAL BREAK)

ROBERTS: We'll get back to Anderson Cooper in Nahariya, Israel, a special edition of AC 360, in just a few minutes.

Meantime, back home tonight, firefighters in Southern California remain on the losing end of their weeklong battle against nature on fire. Two wildfires have consumed over 60,000 acres in San Bernardino County. And tonight, those fires have joined as one.

With homes destroyed, others threatened and residents evacuated, extraordinary efforts are underway. And we mean extraordinary.

Here's CNN's Gary Tuchman.

GARY TUCHMAN, CNN CORRESPONDENT: John, we've been in this helicopter now for three nights. We're live again tonight, and very dramatic difference in the amount of charred ground, burned ground and smoky ground we're seeing.

Right now, you can look. The sun isn't set yet, but you can see the flames here in San Bernardino County. This is the Sawtooth Complex Fire. Two days ago, 26,000 acres burned. It's more than doubled in two days to 53,000 acres. And as you said, the two fires, the Millard Fire and the Sawtooth Fire have merged. They're going to call it one fire now, a total of 63,000 acres burned; 150 houses have been destroyed, 122 cars and trucks.

There are about 2,000 firefighters down there right now, including a most unusual contingent.

(BEGIN VIDEOTAPE)

TUCHMAN (voice-over): The flames are raging. The backfires are flaming. There is no way to estimate how long the dangerous Sawtooth Complex wildfire will last, and now, it is merged with a smaller wildfire to the west.

And amid the controlled chaos, a unique group of firefighters. They are prisoners, female prisoners in the California Department of Corrections. Pauline is in jail for burglary.

UNIDENTIFIED FEMALE: It's very dangerous. But it's very good experience for me. I like it.

TUCHMAN: Backfires are being set in order to stop the cascading flames from moving south. The women clear trees and brush. They stand guard, ready to pounce on flames that start spreading.

Christine (ph) is in prison for robbery.

UNIDENTIFIED FEMALE: Very scary. Yes.

TUCHMAN (on camera): I mean, did you know you were going to have this kind of fright factor when you volunteered to do this?

UNIDENTIFIED FEMALE: No. Not at all, huh-uh.

TUCHMAN: Would you rather not be doing it?

UNIDENTIFIED FEMALE: No, I'd rather not.

TUCHMAN: The heat here is intense. It's 113 degrees Fahrenheit right now, but these flames must make it at least 180 degrees. These women are wearing lots of clothes. They're carrying about 60 pounds of equipment.

(voice-over) This is a 24-hour shift. They'll end up hiking miles.

Nearly half the firefighters battling this huge fire are prisoners. And 10 percent of the prisoner firefighters are women. Violent felons need not apply. The ones who make it have an inventive not to try to escape.

GREG PISANO, DIVISION CHIEF, CALIFORNIA DEPARTMENT OF FORESTRY: They get paid for it. They get time off their sentence. They get to go places they don't normally get to go. They see people. They get to eat better food. And they don't spend their time sitting on the bunk in prison.

TUCHMAN (on camera): Tell me what you're in the facility for, in the prison.

UNIDENTIFIED FEMALE: I'm in here for transporting drugs.

TUCHMAN (voice-over): Brandy (ph), like the other prisoners, has to go to a special fire camp to prepare for this.

UNIDENTIFIED FEMALE: The training is really hard. We train five days a week.

TUCHMAN: As they climb the mountainous terrain, many of these prisoners admit they're fearful and most say it's rewarding, hoping the experience helps propel them to a better future.

(on camera) Do you think when you get out you'll be able to live a lawful life?

UNIDENTIFIED FEMALE: I'm not going to say. I'm going to say it's hard, but I'm going to try to do my best.

TUCHMAN (voice-over): But first, they have to do their best helping to fight the wildfire, still out of control.

(END VIDEOTAPE)

TUCHMAN: We're 10,500 feet in the air. Still clear as a bell, the fire that's burning down there.

Mandatory evacuation in effect in many areas. Just like hurricanes, lots of people won't leave, but unlike hurricanes, when the hurricane comes through, you know you're safe. This fire could go in any direction. It's really important for people to leave.

Tomorrow, the governor of California, Arnold Schwarzenegger, will be coming out here to have a pep talk with the firefighters.

And we do want to thank the friends from KTLA-TV in Los Angeles for giving us their helicopter, their pilot and their cameraman.

John, back to you.

ROBERTS: Some incredible pictures there, Gary. Thanks very much. High above the fires in Southern California. Make sure you stay with us. We'll get back to those fires in the next hour, but right now it's back to the Middle East and Nahariya, Israel. And here's Anderson.

COOPER: John, thanks very much. Yes, we're going to be reporting in this next hour. The dramatic words, the rhetoric coming out of Hezbollah today. The leader of Hezbollah saying all out war is in the making, essentially. We'll see how the ante is being upped hour by hour and what this day may hold when 360 continues. We'll be right back.

(COMMERCIAL BREAK)

COOPER: The Mideast on the brink. The war here heating up. Rockets are firing, a ship is hit, civilians are killed and Americans are caught in the crossfire. All in this special edition of 360.

ANNOUNCER: Hezbollah declares open war, as Lebanon's government speaks out.

UNIDENTIFIED MALE: Why we are being asked to stop Hezbollah but at the same time nobody is putting the necessary pressure on Israel to resolve the problem.

ANNOUNCER: Words strike hard as missiles fly.

A unified front against Israel. Marches in Gaza to support Lebanese militants. Is it a true double threat or just a lot of noise?

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